It’s crucial to have a wealth of information at your fingertips in the world of finance, investing and predicting movements in the stock market. Smart investors understand that the price and movement of a stock is just one small piece of the overall “picture” of the economy.
More so than ever before, investors turn toward alternative data sources to help formulate a trading strategy and predict which stocks and companies for investing. Though alternative data was once limited to hedge fund managers and tech elites, more and more companies make this information available to private investors and their trading strategy.
These investors pay big bucks for this type of specialized data; a recent report by Greenwich Associates found that investors spend an average of $183 million each year on alternative data, and financial powerhouse JP Morgan has predicted that the actual market for alternative data could soon reach over $2 billion. But what exactly is alternative data and what types of data sources should you use?
We’ve created a quick guide to alternative data, along with some recommendations for alternative data providers.
Quick Look: Best Alternative Data Providers
- Yewno|Edge – Learn more
- S&P Global
Using Financial Alternative Data in Your Trading Strategy
On its most basic level, alternative data is data that comes from sources that have not traditionally been considered when buying and selling shares of a company. Traditional data sources like SEC filings, press releases and investor presentations have long been used to power trading strategies and help investors make decisions.
However, alternative data users take a more guerilla approach by using unique insights often gained outside of official company filings. Some of the most common examples of alternative data sources include:
Social Media Posts
If you’ve spent any time at all on social media, you probably already know that consumers love to post, tweet and tag products that they enjoy. Investors may use social media data to predict which upcoming product releases will flourish — and which will flop.
For example, in October of 2015, Irish investing research firm Eagle Alpha analyzed over 7,000 comments on a thread on Reddit’s gaming board and accurately predicted that EA Games would sell more copies of its new Star Wars game than originally anticipated before the game even hit the store shelves.
Website Usage Reports
Websites keep careful logs of the number of visitors that come to their site as well as where these users are through IP and sometimes EXIF data. Increased traffic to a particular shopping website or company-adjacent website (like a fan forum) or an influx of mailing list signups or user registrations may indicate a new announcement or inflated hype for a new release, which can send stock prices soaring.
On the contrary, a less-than-enthusiastic traffic response after a widespread announcement can tell investors to sell their shares before the company’s release.
Geolocation and Satellite Imaging
If you try to gain insights into physical stores and locations, geolocation data and satellite imaging can help you determine where consumers are going, how long they’re spending at certain stores and how long they’re willing to brave large crowds in order to buy goods from a particular company.
All of these data points can be used cooperatively to determine the staying value of a particular store, chain or brand — a particularly useful insight in an age where physical stores are phased out in favor of online shopping.
These are just a few examples of the most popular types of alternative data usage. Other sources of alternative data may include obscure city ordinances or town hall records, patent data, flight, and shipment tracking and online browsing activity.
What to Look for in an Alternative Data Provider
Access to Large Pools of Data
Alternative data is only useful if it is able to quickly incorporate large pools of data to make decisions and predictions. Small data pools are virtually useless when it comes to making conclusions; a failing store may have a fluke day where it makes 30% more profit than usual and a booming online store may have a site error that causes it to show a sudden, drastic decrease in visitors.
Look for alternative data providers that incorporate large amounts of data for the most informed trading decisions.
Data Within Your Realm of Understanding and Trading
It’s important to specialize your alternative data searching and needs to hone in on an industry, store or company that you own stock in or are considering investing in; alternative data needs to be used in conjunction with very large swaths of data.
Otherwise, you may quickly find yourself overwhelmed with the amount of data available at your fingertips and you may start to second-guess your trading strategy. Align your data choices with your industry of interest. For example, if you’re looking for alternative data on McDonald’s fast food restaurants, geolocation data and foot traffic statistics will be much more useful than if you’re studying Amazon.com, which does not offer physical shopping locations except in a few major urban centers.
Usability with Your Trading Software
The best trading software programs allow you to incorporate extensions and outside data into your brokerage account dashboard. Look for alternative data providers that offer connection and cohesion with some of the most popular brokers for assistance to directly incorporate data into your trading strategy.
The Best Financial Alternative Data Providers
Yewno, Inc. is a unique AI-powered alternative data provider that offers data packages, index strategies, and most recently, a game-changing investment research platform called Yenwo|Edge.
The Yewno|Edge platform uncovers hidden risks in your portfolio by ingesting a wide range of alternative data in order to serve up actionable insights based on abstract and ill-defined concepts that impact the markets in unpredictable ways. Concepts identified through Yewno|Edge can range from companies to people, themes, trends, and even events. Yewno|Edge scores the exposure these concepts have on both companies and portfolios so that investors can see, for example, how “data privacy” and “social responsibility” influence performance.
Yewno|Edge's Company Insights
View a company's pricing, plus traditional and alternative data.
Yewno|Edge's Portoflio Exposure
Take a look at your portfolio through trends, global events, and more.
Yewno|Edge's Strategy Builder
Build custom strategies based on specific concepts.
Set up custom notifications so you can better track your portfolio's progress.
Yewno|Edge also uses this concept-based analysis to formulate new portfolio strategies so that you can construct a themed portfolio comprised of the top companies positioned to benefit from their exposure to the concept of “autonomous vehicles” or “the cannabis economy.” Yewno|Edge is web-based and easy to use, making it the perfect investment research platform if you want to incorporate alternative data into your trading strategy but don’t have the time or technical know-how to crunch the numbers yourself.
Alexa is an offset of the Amazon company, which focuses on providing SEO and web traffic research to agencies and business owners. While Alexa’s stated purpose isn’t explicitly for alternative data and trading, users can gain some impressive insights into company health and user frequency that can influence their trading.
For example, Alexa’s site rankings list allows users to search for almost any website on the internet and see where the website’s traffic is coming from, where the site is based out of and how the site’s current level of traffic compares over time. If you have a premium plan, you can also view the keywords that brought users to a specific web page when searched on an engine like Bing or Google.
This type of native data isn’t just useful for business owners who want to find out if their SEO strategy is working — it can also act as a powerful tool for investors who want to use web data to learn about how consumer attitudes shift with regards to specific brands.
Another institutional source of alternative data aimed at fund managers and professional investors, S&P Global provides you with access to insider data to help drive trading decisions in real-time.
For example, S&P Global’s AI incorporates data from decades of trading and combines sales reports and market dynamics with traditional sources of stock data to help empower investors to immediately seize opportunities before they’re released to the rest of the market. Some data that S&P Global provides to its investors include shopping mall traffic statistics and deviations, information on commodity movements and satellite images that can offer fast insights into how locations, corporations and suppliers are doing in the current market.
S&P’s data is also categorized by industry and sector, which makes it easy to find the specific set of data that you need.
Dataminr is a unique information discovery company that delivers information on high-impact events, drawing from a wide range of public information at significant scale. An example of one of Dataminr’s successes came in the cryptocurrency sphere, in which analytics software was able to surface news related to Bitcoin regulation outside of South Korea and alert English-speaking investors before prices dropped.
Since Dataminr’s founding in 2009, they have gained clients in the public and private sector, which include the industries of risk, communications, security, first response, trading, and journalism. The platform is based on each user’s criteria, and tailored alerts are delivered through pop-ups, app notifications, and API. You can even get content from 76 different languages.
Dataminr’s software gives more weight to reliable sources (like CEOs and verified users) when making decisions on product or price movements. Alternative data is only useful if traders can access it before it’s released via a traditional source, like through a press release or official company announcement.
Dataminr is a top choice for investors who are interested in gaining a deeper insight into the movements and public option of popular consumer goods and digitally native companies.
Quandl is a data analysis and aggregation company that offers users access to a host of exclusive and elusive private companies that have been licensed by company leaders. Some data offerings include insights into company hiring statistics, auto sales estimates, manufacturer reports and even company spending patterns.
Quandl’s technology uses AI-based learning to analyze data sets over time, and the company licenses data that is unavailable anywhere else on the web. Quandl’s data is intended for institutional clients, and alternative data sources are limited for individual investors who aren’t associated with a brokerage firm or hedge fund. Individual investors are limited to Quandl’s “core data” sources, which include equity prices, forex trends, forecasts for end-of-day stock prices and global fundamentals data.
This data is able to be exported via Python, R, Excel and other tools, which offers Quandl you a unique data analysis option if you prefer to run your own statistics and link this data with your trading software of choice. Quandl’s exclusive data sets can offer a serious insider trading edge for institutional investors.
Though many industry investors have moved toward alternative sources of data to drive their trading strategies, satellite imagery and web statistics are still only a small puzzle piece in the grand picture of a company’s fiscal health.
Staying up to date with international economic trends and the company’s product releases as well as formulating a reliable technical analysis strategy will help you more effectively use your alternative data source. Remember to thoroughly research any data provider before you sign up for a subscription and elect to start with a free demo account if possible — there’s nothing more disheartening than signing up with a data provider only to find that you can’t use its information with your current brokerage account or trading strategy.